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Office obsolescence low in India, but time to act now to stay relevant

Awantika Mohanty • 22/06/2023
  • Risk of office obsolescence is rising around the world 
  • Newer prime building stock and jobs growth places India in a better position to withstand risk of obsolescence
  • Sustainability accreditation a key instrument to stay ahead of the curve 

While India’s office realty faces a lower risk of obsolescence than US or Europe, the ongoing flight to quality and growing focus on sustainable buildings present a need for landlords and investors to consider appropriate action now to maintain market-relevant assets for the future, underlines Cushman & Wakefield’s latest Asia Pacific report ReThinking The Office Sector: Optimising Your Asset for a New Era.

The report considered factors such as the average age of prime office assets, the percentage of prime stock to total stock within a market, return-to-office-rates, sustainability accreditation and employee density benchmarks when weighing up the risk of obsolescence for 10 key markets across Asia Pacific including India. 
According to the report, the average age of Grade A office stock across top three Indian cities of Mumbai, Bengaluru, and Delhi, is less than 10 years old and therefore less likely to need any significant retrofitting in the immediate future. However, there is an inventory of secondary stock that will require attention, particularly in non-prime locations which are facing obsolescence.  

Approximately 14% of office stock in India is owned by REITs, though it is noted that is likely to rise to around 22% by the end of 2024 with various REITs preparing to launch of over the next 18 months. This scenario, too, offers an opportunity for astute landlords to allocate sufficient capital expenditure budgets to maintain assets into the future and stay relevant. 

The report goes on to highlight the dramatic increase in the importance of sustainability with both occupiers and investors pushing the market towards becoming more sustainable, not least to meet their own stated sustainability goals. In this vein, it is now practically universal for major occupiers, to have minimum sustainability requirements for any space they are looking to lease. Given the widespread shift to a greener future, landlords who demonstrate their assets’ sustainability credentials are likely to be at an advantage, the report asserts.   

It cites the example of Mumbai’s office market which has a relatively youthful prime office stock with an average age of less than 12 years due to the emergence of relatively new submarkets such as Bandra-Kurla Complex (BKC), which has attracted prominent domestic and global occupiers to set-up their base. However, the report estimated that currently approximately 13% of stock in Greater Mumbai, equivalent to almost 10msf, will require some form of upgrade to meet higher occupier standards. Mumbai’s central business district, which accounts for only 2% of the city’s total stock (2msf), meanwhile, has greater risk of obsolescence due to building’s age, lack of further connectivity improvisation, congestion, and generally lower levels of amenity. There is, therefore, a need to rethink the office sector in the city’s original office hub. 

“India’s office market is poised to have a steady growth with robust return-to-office numbers. An estimated 3Mn new office jobs are likely to be added by the end of the decade fuelled by domestic demand and India’s attractiveness as a preferred outsourcing knowledge hub. While these positive indicators will further boost investor interest and create more demands, landlords will have to ensure that the assets fulfil changing occupier needs (from an office space). ESG compliance will also play a crucial role with an increase in demand for minimum ESG requirements for assets. Landlords who can either refurbish existing stock to meet internationally recognized accreditation or apply for one in case the building has the provisions are likely to benefit in the long run”. -  Anshul Jain, Head of APAC Tenant Representation and Managing Director, India & South East Asia



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